Postal bank scandal kills mega IPO hopes
Investment bankers, who for years have been pitching for a mega stock market listing of the Postal Savings Bank of China (PSBC), are being forced to face reality: the deal may be put on ice for a long time.
PSBC, the seventh-largest lender on the mainland, had been expected to do an initial public offering of shares (IPO) through a listing in Hong Kong , or a dual listing in Hong Kong and Shanghai, as early as the first half of next year, raising the equivalent of several billion US dollars.
But the recent taking into custody of Tao Liming (pictured), the bank's president, and at least two of his colleagues at the institution and its parent company on suspicion of having committed economic crimes, has nixed the IPO plan, according to investment bankers who are tracking the potential deal.
The bank announced earlier this year that it had completed its internal restructuring and made itself a shareholding company, paving the way for the next widely expected step to become a listed company.
'We saw the news and we called them [officials at PSBC] ... and they told us it is not a good time to discuss anything, including the IPO case, before they get a new boss, when the whole story [about the scandal] can be much clearer,' said one Hong Kong investment banker who hopes to be involved in any potential deal.
'I think ... the entire IPO plan of the bank has been put on hold for now.'
Although the investigations so far centre on individuals at the bank, the scandal as underscored the need to improve the weak corporate governance and internal controls at the bank.
Usually, such a process can take up to a year to hire an external auditing and management consultant to conduct an independent review and then submit it to the bank's board for further action, according to a restructuring consultant who has worked on similar cases at other Chinese state-owned banks.
Beijing-headquartered PSBC, which runs a vast branch network on the mainland from big cities such as Shanghai to remote villages, became an IPO target for many investment bankers after the Big Four state-controlled banks started to go public a few years ago.
And in the world of investment banking, big IPOs translate into big fees for the banks - typically between 1 per cent and 3 per cent of the capital raised from the IPO.
The deals often also lead to fat bonuses for the bankers.
Many Western banks have relocated their senior executives to Hong Kong and the mainland in the past few years in the hope of landing such deals.
The latest example came this week when Goldman Sachs appointed a new chairman for Asia-Pacific operations and based him in Beijing, the first major international investment bank to do so. Market watchers say the appointment of Mark Schwartz is likely to facilitate Goldman's relations with the Chinese government as well as help the bank win more potential business from big state-owned enterprises that may need to raise capital.
While PSBC has not officially appointed any investment bank to advise on a potential IPO, several firms, including two big homegrown Chinese investment banks - China International Capital Corporation (CICC) and Citic Securities - have already established close ties with PSBC, according to industry insiders.
CICC was hired by PSBC last year to help the bank make a maiden issue of subordinated bonds worth about 15 billion yuan (HK$18.37 billion). The issue went smoothly, helping strengthen the relationship between CICC and the postal bank.
Earlier this year, Citic Securities was hired by China Postal Express and Logistics to sponsor its US$1.6 billion IPO in Shanghai.
The logistics firm's parent company is the China Postal Group, which also controls PSBC.
The amount, in yuan, in deposits held by the Postal Savings Bank of China